The Pension Protection Fund (PPF) has announced its proposed levy estimate for the 2019/20 levy year at £500 million, down from the £550 million estimate for 2018/19. It has also published a consultation on the draft levy rules for 2019/20.
The PPF has confirmed that last year saw the highest level of claims in PPF history and it expects the high level of claims to continue. However, it is committed to its policy of keeping the levy stable and predictable within each three-year cycle.
The levy estimate
The levy estimate for 2019/20 (the amount the PPF is seeking to collect) is £500 million, £50 million lower than the levy estimate for 2018/19. The PPF confirmed that its 2017/18 accounts reflect a year in which it received a record level of claims and also reported contingent liabilities, in relation to expected insolvencies, of around £1.4 billion. The PPF expects that claims will remain at a high level and could exceed those in 2017/18. Despite this, the 2019/20 levy estimate is in line with the third triennium parameters, which were set last year.
The PPF considered whether the increase in claims justified making a change for 2019/20 and concluded that it did not. However, should the level of claims continue to be high, the PPF may change the position for next year's rules. David Taylor, General Counsel at the PPF, stated
"We continue to monitor the situation closely and, as we’ve always made clear, will adjust the levy in future years if necessary to respond to circumstances."
The PPF Board has confirmed that it does not intend to adjust the Levy Scaling Factor or scheme-based levy multiplier for 2019/20 (these remain at 0.48 and 0.000021 respectively).
Draft levy rules
The PPF has launched a consultation on the draft levy rules for 2019/20, which invites comments on the basis on which the PPF should calculate the levy for 2019/20. The PPF has concluded that the rules for calculating individual levies, which were made for 2018/19, are operating well. Therefore, it is only proposing limited adjustments including:
- updating the rules and levy calculation to identify those schemes that ought to be levied as a consolidation vehicle (where schemes which are not generally associated with each other come together to pool assets, share administration services and sit under one governance structure)
- updating the levy rules relating to schemes without a substantive sponsor
- updating the Deficit Reduction Certificates (DRCs) Appendix and Guidance to clarify the exclusion of investment management expenses
- revising the guidance and rules on block transfers and introducing an application form for 2019/20 which will help applicants ensure all relevant information is provided
- extending the block transfer certificate to allow the reporting of additional information
- taking additional steps to help schemes plan for their levy payments; and
- a discretion that would allow the PPF to deal with consequential impacts from Britain's exit from the European Union.
The PPF is satisfied with the model used to measure insolvency risk in the 2018/19 levy year and does not propose to make any further changes to the measurement of insolvency risk in the 2019/20 levy.
New standard form contingent asset agreements were issued by the PPF in January 2018. The PPF explains that all schemes which currently have in place Type A and B contingent assets that include a fixed monetary cap element must ensure that that they take steps to re-execute their contingent assets on new standard form agreements if the contingent asset is to be recognised in the 2019/20 levy.
The proposed deadline for submitting re-executed documents to the PPF is 31 March 2019 and it is expected that the process will be similar to that for submitting new contingent assets.
The PPF is of the opinion that whilst consolidation may bring real benefits, a consolidation vehicle may pose different risks from those of 'conventional' schemes. Therefore, it believes that it is essential that there is a robust regulatory framework in place to protect scheme and PPF members as well as levy payers.
The PPF has included a new rule to allow it to charge a risk-reflective levy on commercial consolidators in 2019/20 and has developed the levy rules to provide an appropriate basis for calculating this levy.
A further consultation on a regulatory regime for commercial consolidators is expected later this year.
The consultation on the draft levy rules closes on 25 October 2018 and the final levy rules for 2019/20 are expected to be published in December 2018.
The PPF confirmed that the next point at which it expects to consider substantive policy changes in its approach will be for the fourth triennium, which begins in levy year 2021/22. However, it will start to identify potential issues that may affect its policy within the next year and would be interested to receive any initial views.
Trustees and employers should access the PPF's portal and review their scheme data and scores as soon as possible in order to have sufficient time to make any changes to ensure that their levy calculation is accurate. The PPF encourages trustees and employers to log on at from early October 2018.
We would suggest that trustees and employers should be discussing the potential impact of the levy proposals on their schemes with their advisers and considering, as a matter of urgency, whether they are able to take steps to reduce the levy amount payable, for example, by implementing contingent asset agreements, re-executing existing agreements (see "Contingent Assets" above) or agreeing deficit reduction contributions.